Xiaming Liu

Causal links between foreign direct investment and trade in China

Abstract This paper examines the causal relationship between foreign direct investment (FDI) and trade (exports and imports) in China. The empirical study is based on a panel of bilateral data for China and 19 home countries/regions over the period 1984–1998. Econometric techniques for panel data are applied to test unit roots and causality. The results indicate a virtuous procedure of development for China: the growth of Chinas imports causes the growth in inward FDI from a home country/region, which, in turn, causes the growth of exports from China to the home country/region. The growth of exports causes the growth of imports. The results have important policy implications.

Foreign direct investment and productivity spillovers in the Chinese manufacturing sector

Abstract In this paper a simple simultaneous model is constructed to examine whether there are productivity spillovers from both the presence of foreign direct investment (FDI) and competition between local and foreign firms. The model is tested on the data from China’s latest industrial census in 1995. The results indicate that the extent to which spillovers occur varies with different types of ownership of local firms and of FDI. While collective- and private-owned enterprises benefit from demonstration and contagion effects from foreign presence, productivity gains of state-owned enterprises largely come from competition with foreign firms. Productivities of local and foreign firms are jointly determined. Evidence also suggests that market-oriented FDI tends to generate spillovers mainly via competition with local firms.

Country characteristics and foreign direct investment in China: A panel data analysis

Country Characteristics and Foreign Direct Investment in China: A Panel Data Analysis. — In this paper an error-components model is developed to analyze the economic, political and cultural determinants of both pledged and realized FDI in China which has recently become the second largest host country for FDI. The panel data cover the period 1983–1994 (1984–1994) and 22 (17) home countries/regions in the case of pledged (realized) FDI. The results indicate that bilateral trade, cultural differences, and relative real changes in market size, wage rates, and exchange rates are important determinants of pledged FDI, and that bilateral trade, relative changes in wage rates and exchange rates affect realized FDI.ZusammenfassungNationale Charakteristika und ausländische Direktinvestitionen in China. Eine Analyse von Panel-Daten. — Die Verfasser entwickeln ein Fehlerkorrekturmodell, um die wirtschaftlichen, politischen und kulturellen Bestimmungsgründe sowohl für zugesagte als auch für realisierte ausländische Direktinvestitionen (FDI) in China, welches neuerdings das zweitgrößte Anlageland für solche Investitionen geworden ist, zu untersuchen. Die Panel-Daten umfassen den Zeitraum 1983–1994 (1984–1994) und 22 (17) Herkunftsländer/-regionen bei den zugesagten (realisierten) FDI. Die Ergebnisse deuten darauf hin, daß bilateraler Handel, kulturelle Unterschiede und relative reale Veränderungen von Marktgröße, Lohnsätzen und Wechselkursen wichtige Determinanten für zugesagte FDI sind, während bilateraler Handel und relative Veränderungen von Lohnsätzen und Wechselkursen die realisierten FDI bestimmen.

An empirical investigation of the causal relationship between openness and economic growth in China

This study investigates the causal relationship between openness and economic growth in China. The integration and cointegration properties of the data are analysed and the models of Granger, Sims, Geweke and Hsiao are used to identify a bi-directional causal relationship between GNP and exports plus imports. This bi-directional causation is consistent with Chinas development strategy of protected export promotion

The impact of foreign direct investment on labour productivity in the Chinese electronics industry

Foreign direct investment (FDI) may have a positive impact on labour productivity in recipient industries through direct introduction of capital, technology and management skills and indirectly through spillover effects on domestic firms. This study uses a model intended to examine the overall effects of inward FDI in the Chinese electronics industry. Official data are used for 41 sub-sectors of the industry in 1996 and 1997 having differing levels of FDI. Labour productivity is modelled as dependent on the degree of foreign presence in the industry and other variables, namely capital intensity, human capital and firm size for scale factors. The econometric results suggest that foreign presence in the industry is associated with higher labour productivity.

Are Chinese stock markets efficient? A cointegration and causality analysis

Established in December 1990 and July 1991 respectively, the Shanghai and Shenzhen Stock Exchanges are the only two official stock markets in China. This paper aims to test for randomness in each stock exchange share price index, and to examine the relationship between the two share price indexes. Statistical evidence shows that both the Shanghai and Shenzhen indexes can be best characterized as random walk processes and therefore the markets are efficient individually. However, the Engle-Granger two-stage cointegration analysis and the Johansen procedure suggest a long-run equilibrium relationship between the two stock prices, while the Granger causality test indicates a feedback relationship between the returns of the Shenzhen and Shanghai shares. These results imply that the stock markets are collectively inefficient.

Determinants of Bilateral Trade Flows in OECD Countries: Evidence from Gravity Panel Data Models

This paper aims to identify the main causes of bilateral trade flows in OECD countries. The specific features of the study include the explicit introduction of R&D and FDI as the two important explanatory variables, conduct of unit root tests in the panel data framework and careful consideration of endogeneity. The main findings are that the levels and similarities of market size, domestic R&D stock and inward FDI stock are positively related to bilateral trade, while the distance, measured by both geographical distance and relative factor endowment, between trade partner countries has a negative impact. These findings lend support to new trade, FDI and new growth theories.

Car ownership and use in Britain: a comparison of the empirical results of alternative cointegration estimation methods and forecasts

This paper addresses two problems faced by many forecasters in the transport sector, namely how to use a relatively small sample to forecast car ownership over a long period of time and avoid the difficulties caused by spurious or nonsense regressions. Five alternative estimation methods are used to test for cointegrating relationships between per capita car ownership (and use) and real per capita personable disposable income, real motoring costs and real bus fares. These are the Engle-Granger two-stage, the Phillips-Hansen fully modified, the Wickens-Breusch one-stage, the autoregressive distributed lag, and the Johansen maximum likelihood methods. The corresponding error correction models are estimated, and a comparison made between the derived short- and long-run demand elasticities for car ownership and use. The ex-post forecasting performance of the error correction models, together with an ARIMA model specification, is evaluated using a number of performance criteria. The long-range time series forecasts obtained from the cointegrating regressions are compared with those from the cross-sectional approach used by the UK Department of the Environment, Transport and the Regions, and the policy implications discussed.

Stock Returns and Volatility: an empirical study of Chinese stock markets

This paper uses GARCH models to analyse the relationship between returns and volatility on the Shanghai and Shenzhen Stock Exchanges in China. Empirical estimates using the sample data from 21 May 1992 to 2 February 1996 suggest that the variances of the returns in the two markets are best modeled by the GARCH-M (1,1) specification. Volatility transmission between the two markets (the volatility spill-over effect) is also found to exist. The results of one month ahead ex ante forecasts show that the conditional variances of the returns of the two stock markets exhibit a similar pattern.

China and the multinationals—A winning combination

Abstract This article uses the Porter-Dunning diamond model of international competitiveness to explain the current situation and further development of the international competitiveness of mainland Chinas manufacturing sector. The emergence of a relatively wide range of labour-intensive manufactures as Chinas most dynamic exports conforms well to the countrys natural comparative advantage of low costs and the restructuring of the Asian newly industrialized economies. However, since competitive advantage based on basic/generalized factors is neither significant nor sustainable, the Chinese government needs to encourage the strategy of reaching beyond current factor endowments to plan for a future China which would be rich in skills as well as capital, and would have higher order competitive advantage. Greater participation of multinational business activity from the triad of the US, Japan and the European Union can speed up this process.